I am a CPA in Texas with an MBA from the University of Chicago. I have seen a lot and made many mistakes. Hopefully by now I will have learned something from them. Just as importantly, you may learn something from my mistakes. You can e-mail me by clicking on my "View my complete profile".

Wednesday, February 18, 2009

SEC Faulted, Lacks Gulag

"Fraud investigator Harry Markopolos blamed the [SEC's] 'financial illiteracy' for failing to heed his warnings about money manager Bernard Madoff. ... 'There was an abject failure by the regulatory agencies we entrust as our watchdogs,' Mr. Markopolos said in prepared remarks for the meeting. ... Markopolos had harsh words for the SEC. Officials asked few questions and made little effort to understand the derivative instruments Mr. Madoff said he was using, according to Mr. Markopolos. His experience blowing the whistle to the SEC led him to conclude 'that the SEC securities' lawyers if only through their ineptitude and financial illiteracy colluded to maintain large frauds such as the one to which Mr. Madoff later confessed'," Michael Crittenden at the WSJ, 4 February 2009.

"Rep. Paul Kanjorski, D-Pa., the House Financial Services subcommittee's chairman, vented frustration after the SEC's acting general counsel said the five officials appearing before the panel couldn't answer lawmakers' questions about the Madoff case because its under investigation. ... Kanjorski accused the agency of impeding the panel's investigation, calling it an 'abuse of authority.' ... Linda Thomsen, the agency's enforcement director, said the SEC takes the Madoff case very seriously, but asserted there were confidential areas related to an ongoing investigation that couldn't be publicly discussed", Marcy Gordon at the Houston Chronicle, 5 February 2009.

"In the torrent of criticism that Mr. Markopolos and lawmakers heaped on the SEC and its senior staff members, some complaints were serious--that the agency lacked the expertise to tackle major fraud by big players and had no systematic way of dealing with whistle-blowers. ... [Lawmakers] had been far more riveted by Mr. Markopolos testimony, which at times seemes to enter verbal territory more often explored at organized crime hearings. He referred to his fear that he would be killed if Mr. Madoff learned of his investigation. At one point, noting his experience in military intelligence, he described an offer he made to 'go undercover' for the SEC--a proposal that was rebuffed. ... While one lawmaker asked whether this all wasn't 'a little paranoid,' others agreed that Mr. Markopolos was wise to be cautious, given the scale of the fraud he was trying to bring to light", my emphasis, Diana Henriques, 5 February 2009, at the NYT, link: http://www.nytimes.com/2009/02/05/business/05madoff.html.

4 comments:

The normal person doesn't need the SEC, they're only needed as cover by the people pushing financial "products".

In saving today with effort you have a choice of avoiding two of the following:

- taxes- inflation- risk

Actual saving requires avoiding all three.

Without inflation and taxes the small investor has no reason to be in the stock market (or any fancy financial products).

He should be just in cash, or possible some really secure bonds. Saving over a lifetime can easily support a reasonable retirement. Under these conditions "financial market regulation" amounts to counting bars and/bonds in a vault -- simple and hard to fake. So no real complex regulation is required.

The major push into the stock market is due to the pressure from inflation and taxes -- bonds are a certain loss ifnot a wipeout. Fix the currency and government spending problems and the "regulation" problem will be simpler.

IACome on now. Accounting has turned to fiction, and as such how can anyone be held accountable? The SEC simply recognizes that any sort of prosecution will be met with a change in accounting proceedure to allow what they have identified.

Only it will cost more to cover up the same problem in the future. Witness the results of Sarbox where the same things are being done with laxer regulations (level 3 assets), or with more layers of obfuscation lest anyone try to find any irregularities, or with sacrificial lambs that are appointed as CFO-for-a-month to sign questionable reports.

Hi IAForgot this little tidbit that in retrospect should have warned everyone to short Lehman stock, hooboy:http://archives.chicagotribune.com/2008/may/19/business/chi-erin-callan-lehman-brothers-080519-ht